Matching Alphabet’s investments could help investors reap the rewards.
Many businesses make investments in themselves, in the form of research and development and capital expenditures, to grow more profitable. Alphabet (ticker: GOOG, GOOGL) has gone a step further by establishing two venture capital arms that continue to find and fund startups: Google Ventures, with $5 billion under management, and CapitalG, with $3 billion under management, have provided the means for a number of startups to grow, and in some cases go public. These aren’t the so-called “moonshots” the company is famous for investing in — those ideas and innovations may never bear fruit. Rather, the investments Alphabet has made in the following companies have brought the business a tidy sum; in fact, the company noted that debt and equity securities brought in more than $2 billion in the third quarter, and more than $3 billion year to date. So what are the companies Google has invested in, and should you invest in them as well? Consider these seven stocks.
Uber Technologies (UBER)
2020 has been a unique year for plenty of companies, and Uber is no exception. Between lockdowns keeping people at home and a global pandemic making customers hesitant to get in a stranger’s car, Uber’s core ride-sharing business has suffered considerably — the company reported a 35% decrease in trips during the third quarter, as well as a 50% decline in mobility gross bookings. But there’s a silver lining to the year: the growing importance of Uber’s delivery service. Delivery gross bookings rose an impressive 135% last quarter while delivery revenue increased 124%, and although the company’s delivery segment is not yet profitable, it is getting closer. Just as Google Ventures made an investment in Uber, so too is Uber investing heavily in its delivery business, with the completion of its acquisition of rival Postmates on Dec. 1 — but only time will tell if that investment will pay off.
Lyft’s fortunes seemed to be turning around over the last few months as lockdown restrictions eased across the country. In its third-quarter earnings report, Lyft projected that revenue would rise somewhere between 11% and 15% in the fourth quarter. Unfortunately, those hopes seem to have been dashed by the unforeseen surge in virus cases around the country, and the result is that Lyft now believes revenue will be closer to the lower end of guidance than not. While that’s obviously not great news, the company has done what it can to mitigate its losses. For instance, Lyft expects its earnings before interest, taxes, depreciation and amortization (EBITDA) losses to be less than previously forecast, at $185 million compared to the $190 million to $200 million it expected. Lyft has had a difficult year, and shares are about even year to date. If the company can hang on until vaccines begin to roll out, it still has plenty to offer investors.
Throughout 2020, many employees have had to operate off-site, making it clear to businesses of all shapes and sizes how essential cloud computing has become. Cloudera has yet to see major benefits. That said, third-quarter revenue increased 10%, defying a warning management gave the quarter before that revenue growth would slow by the end of the fiscal year. As a result, Cloudera shares are up about 9% year to date, and its forward price-to-earnings ratio of just more than 29 is quite low for the company historically. That presents an opportunity for investors looking for a cloud company with a lot to offer, and Cloudera has plenty for investors to like, including its new Cloudera Data Platform architecture. A company like Alphabet knows cloud computing better than most, and if Google Ventures is betting on Cloudera, then investors may want to as well.
As the pandemic pushes companies to conduct more business online, DocuSign continues to profit. The company allows businesses to sign and seal deals over the internet rather than in person, an essential service that customers continue to clamor for — as evidenced by the 63% increase in billings that DocuSign reported in the third quarter, as well as the 53% increase in revenue. Meanwhile, profitability continues to improve, with non-GAAP net income per share doubling year over year from 11 cents to 22 cents. DocuSign plans to keep the good times rolling by pushing out new ways to make e-signing easier for customers, such as the ability to complete a DocuSign eSignature through Facebook via a chatbot, and it recently acquired Liveoak Technologies to allow deals to close over teleconference calls. Overall, DocuSign is having an excellent year, with shares up more than 200% — and the team at Google Ventures must be very pleased with the results of their investment.
Editas Medicine (EDIT)
Google Ventures doesn’t just invest in tech companies — as a matter of fact, over one-third of the fund’s investments are in life sciences. One of those investments is Editas Medicine, which exists at the crossroads between technology and medicine as a CRISPR company. CRISPR is a highly advanced technology that allows scientists to essentially edit a patient’s genes, and it may very well be the key to curing a wide range of genetic diseases. Editas is one of a number of companies that utilizes this technology, but it has a small lead over the competition. One of its treatments, EDIT-101, which treats Leber congenital amaurosis 10 (LCA10), is the first in vivo CRISPR treatment to enter a clinical trial. LCA10 is an ocular disease, but Editas has treatments in its pipeline for a number of blood diseases and cancers as well — and if any of these treatments were to prove successful, it would not only illustrate the case for widespread CRISPR use but also be immensely profitable for Editas and its shareholders.
CapitalG first invested in Snap back in 2016, roughly a year before the company went public. For most of the years since, it has had to watch as Facebook (FB) pummeled Snap’s business with Instagram clones of Snap features. Recently, Snap has emerged as a force to be reckoned with as customers flock to the social media platform. In the third quarter alone, Snap reported an 18% increase in daily active users, while the average number of Snaps created every day rose 25%. The results have boosted Snap’s top line, with revenue up 52%, and although the company reported a net loss of $200 million, that’s still a 13.5% decrease in losses year over year. It doesn’t appear that Snap’s growth will be slowing down anytime soon, as the company continues to roll out new shows, Lenses and other products that draw in more users. So investors may want to mimic Capital G and invest sooner rather than later.
According to SurveyMonkey CEO Zander Lurie, “75% of companies we’ve surveyed recently say they are finding it necessary to accelerate their digital transformation due to COVID, and 87% say customer feedback has become more important compared to pre-pandemic days.” And he ought to know — SurveyMonkey provides online surveys for companies around the world, helping businesses break down the results and extract information. With customers stuck at home, SurveyMonkey’s products have never been so useful, and the company is reaping the rewards. In the third quarter, SurveyMonkey’s revenue increased 20% year over year, thanks to a 13% increase in paying users. SurveyMonkey is moving fast to capitalize on its position, rolling out several new enterprise integration tools to make it easier for the company’s biggest customers to learn more about their own customers, and investors should move fast as well to buy SurveyMonkey.
Seven stocks Google is betting on:
— Uber Technologies (UBER)
— Lyft (LYFT)
— Cloudera (CLDR)
— DocuSign (DOCU)
— Editas Medicine (EDIT)
— Snap (SNAP)
— SVMK (SVMK)
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